American Hospital Association v. Price

          Argued May 15, 2017

         Appeal from the United States District Court for the District of Columbia (No. 1:14-cv-00851)

          Joshua M. Salzman, Attorney, U.S. Department of Justice, argued the cause for appellant. With him on the briefs were Mark B. Stern, Attorney, Janice L. Hoffman, Associate General Counsel, U.S. Department of Health & Human Services, and Susan Maxson Lyons, Deputy Associate General Counsel.

          Catherine E. Stetson argued the cause for appellees. With her on the brief was Morgan L. Goodspeed. Adam K. Levin entered an appearance.

          Ronald S. Connelly was on the brief for amicus curiae Fund for Access to Inpatient Rehabilitation in support of appellees.

          Before: Garland, Chief Judge, and Henderson and Wilkins, Circuit Judges.

          Wilkins, Circuit Judge:

         Ought implies can.^[1] That is, in order for law - man-made or otherwise - to command the performance of an act, that act must be possible to perform. This lofty philosophical maxim, ordinarily relevant only to bright-eyed college freshmen, sums up our reasoning in this case.

         Congress established an administrative appeals process for denied Medicare reimbursement claims, and directed the U.S. Department of Health and Human Services ("HHS") to complete that process within a specified timeframe. Buried under an ever-growing backlog of over a half-million appeals, HHS failed - and continues to fail - to comply with the statutorily mandated deadlines. Consequently, the American Hospital Association and three healthcare providers (together, "Healthcare Providers") sought a mandamus order to force the HHS Secretary to clear the backlog and adhere to the statute's timeframe. The District Court, in turn, thoughtfully and scrupulously weighed the equities, concluding that the scales tipped in favor of mandamus.

         The District Court was then confronted with the unenviable task of defining the scope and substance of the mandamus order. In an effort to minimize the judiciary's intrusion on the political branches' prerogatives, the Court adopted an ends-oriented approach of setting targets for HHS to hit, leaving to the Secretary the choice of means for hitting those targets. But what were the appropriate targets to set? The Healthcare Providers proposed an ambitious four-year timetable. The Secretary criticized that timetable as impossible to achieve lawfully and potentially counterproductive, but offered no alternative. Lacking a competing proposal, the District Court adopted the timetable suggested by the Healthcare Providers. In doing so, however, the Court declined to seriously grapple with the Secretary's assertion that lawful compliance with such a mandamus order would be impossible. That is, the Court commanded the Secretary to perform an act - clear the backlog by certain deadlines - without evaluating whether performance was possible. We conclude that, notwithstanding the District Court's earnest efforts to make do with what the parties presented, the failure to seriously test the Secretary's assertion of impossibility and to make a concomitant finding of possibility was an abuse of discretion. The Court declared that a party ought without regard for whether the party can.

         I.

         A.

         "Medicare provides federally funded health insurance to disabled persons and those aged 65 or older . . . ." Council for Urological Interests v. Burwell, 790 F.3d 212, 215 (D.C. Cir. 2015) (discussing 42 U.S.C. §§ 1395 et seq.). After a healthcare provider (e.g., a hospital) performs a service it believes is covered by Medicare, it submits a claim for reimbursement to the Centers for Medicare and Medicaid Services, an agency within HHS. 42 U.S.C. §§ 1395ff(a)(1)-(2), 1395kk-1(a); 42 C.F.R. §§ 405.904(a)(2), 405.920-405.928. When a provider is denied reimbursement, or is otherwise "dissatisfied" with the initial determination, it is entitled to a four-level administrative appeals process, followed by judicial review. See generally 42 U.S.C. § 1395ff. We previously described the process in greater detail. See Am. Hosp. Ass'n v. Burwell, 812 F.3d 183, 185-87 (D.C. Cir. 2016) (hereinafter, "AHA I").

         From start to finish, the administrative appeals process is designed to take less than one year. To keep things moving, the statute sets specific time frames for each of the four levels of the process: sixty days for the first level, 42 U.S.C. § 1395ff(a)(3)(C)(ii); another sixty days for the second level, id. § 1395ff(c)(3)(C)(i); ninety days for the third level, id. § 1395ff(d)(1)(A); and another ninety days for the fourth level, id. § 1395ff(d)(2)(A). "For years, the administrative appeal process functioned largely as anticipated, with its various stages typically completed within the statutory time frames." AHA I, 812 F.3d at 186 (citing Am. Hosp. Ass'n v. Burwell, 76 F.Supp.3d 43, 46 (D.D.C. 2014)).

         But starting in fiscal year 2011, an unexpected and dramatic uptick in appeals produced a jam in the process. The uptick was attributable to multiple causes, including "a large increase in the number of new beneficiaries as members of the 'baby boom' generation began to reach 65 and become eligible for Medicare, " and "a growing sense, among at least some members of the provider community, that it is a good business practice to appeal every denied claim." Decl. of Ellen Murray, Chief Fin. Officer of the Dep't of Health and Human Servs., J.A. 91-92. Furthermore, as we stressed in our previous decision, much of the increased workload can be traced back to the congressionally mandated Medicare Recovery Audit Program. AHA I, 812 F.3d at 186-87. Under that program, recovery audit contractors ("RACs") would review reimbursement claims that have already been paid, "identify[] underpayments and overpayments, " and "recoup[] overpayments." 42 U.S.C. § 1395ddd(h)(1). When a RAC flags an overpayment, the healthcare provider could either repay the difference or appeal the RAC's decision through the four-level administrative appeals process, as though the claim were denied at the outset. Id. § 1395ddd(f)(2)(A). Instead of repaying the difference, many providers elected to avail themselves of the administrative process. After the program was implemented, "the number of appeals filed ballooned from 59, 600 in fiscal year 2011 to more than 384, 000 in fiscal year 2013." AHA I, 812 F.3d at 187.

         As those appeals moved through the process, they piled up at the third level, where an administrative law judge ("ALJ") reviews the matter de novo. Instead of waiting in line, providers stuck at the ALJ level may skip to the next, through a process called "escalation." 42 U.S.C. § 1395ff(d)(3). But that choice comes at a cost: the provider must forfeit certain procedural rights, such as a hearing before an independent ALJ. Id. § 1395ff(d)(1), (2). Many claimants, therefore, have been reluctant to "escalate" their appeals, and the ALJ backlog continues to grow. As of June 2, 2017, there was a backlog of 607, 402 appeals awaiting review at this level. Status Report of Def. Thomas Price at 2, No. 14-cv-851 (June 5, 2017), ECF No. 56. On its current course, the backlog is projected to grow to 950, 520 by the end of fiscal year 2021, id., and "some already-filed claims could take a decade or more to resolve, " AHA I, 812 F.3d at 187. This is, of course, far outside the ninety-day timeframe set by statute. 42 U.S.C. § 1395ff(d)(1)(A).

         B.

         In 2014, the Healthcare Providers filed suit seeking a mandamus order to compel the HHS Secretary to clear the backlog and comply with the ninety-day statutory timeframe for ALJ hearings.

         The Healthcare Providers moved for summary judgment, and the Secretary simultaneously moved to dismiss for lack of subject-matter jurisdiction. Am. Hosp. Assoc. v. Burwell, 76 F.Supp.3d 43, 45 (D.D.C. 2014). The District Court first grappled with whether it faced a jurisdictional question - i.e., whether, pursuant to 28 U.S.C. § 1361, the threshold mandamus requirements were met, United States v. Monzel, 641 F.3d 528, 534 (D.C. Cir. 2011) - or a merits question - i.e., whether mandamus would be equitable, Telecomms. Research & Action Ctr. v. FCC, 750 F.2d 70, 80 (D.C. Cir. 1984). The Court concluded that the jurisdictional and equitable merits inquiries were one and the same ("merged"), and so resolved the summary judgment and dismissal motions together. Am. Hosp. Assoc., 76 F.Supp.3d at 49-50. Based on this merged analysis, the District Court granted the Secretary's motion to dismiss, reasoning that "HHS's budgetary constraints, its competing priorities, and its incipient efforts to resolve the issue together dictate that mandamus is not warranted." Id. at 56. "Congress, " furthermore, was "aware of the situation and [was] in a position to address the problem." Id.

         On appeal, we reversed the District Court's dismissal. AHA I, 812 F.3d at 194. We first clarified that "the distinction between the jurisdictional inquiry and the equitable merits inquiry matters, especially because it affects our standard of review." Id. at 190. As for the jurisdictional inquiry, we held that the Healthcare Providers "ha[d] demonstrated that the threshold requirements for mandamus jurisdiction [were] met." Id. at 192. We then left the equitable merits inquiry to the District Court to consider but, in an effort to help guide the Court's "difficult decision, " we "set out the factors that weigh most strongly for and against mandamus in this case." Id. Counseling for mandamus, we highlighted the backlog's real impact on human health and welfare, and, "critically to our thinking, " the Secretary's substantial discretion over the RAC program, which contributed significantly to the backlog. Id. at 193. Counseling against mandamus, we highlighted the risk of "infringing on the authority and discretion of the executive branch;" the legislative branch's awareness of the problem and its capacity to furnish a comprehensive solution; the Secretary's incipient but good-faith efforts to reduce the backlog; and the availability of some, albeit incomplete, alternative relief in the form of "escalation." Id. at 192-93. Ultimately, "the clarity of the statutory duty, " we remarked, "likely will require issuance of the writ if the political branches have failed to make meaningful progress within a reasonable period of time - say, the close of the next full appropriations cycle."^[2] Id. at 193.

         On remand, the District Court balanced the equities to determine whether mandamus was appropriate. After considering our guidance regarding the factors that counseled for and against the writ's issuance, the District Court evaluated the political branches' progress - and potential for progress - toward a solution. But by the Court's estimation, the current measures were unlikely to yield meaningful progress, and so it concluded that the equities weighed in favor of mandamus. Having concluded that some relief was warranted, the District Court ordered further briefing and a status conference to determine the scope and substance of that relief.

         The Healthcare Providers proposed two sets of options: either a means-oriented plan requiring the Secretary to take specific actions, or an ends-oriented plan setting a timetable for clearing the backlog. The District Court opted for a timetable, reasoning that such an approach would "intrude as little as possible on the Secretary's specific decisionmaking processes and operations." Mem. Op. at 5, No. 14-851 (D.D.C. Dec. 5, 2016), ECF No. 48 (hereinafter, "Mandamus Op."). Because it adopted the ends-oriented approach, the Court believed that it "need[ed] not dive into the parties' debate over" the means. Id.

         Arguing against the Healthcare Providers' proposed timetable, the Secretary advanced three contentions relevant here. First, although this Court indicated that curtailment or complete suspension of the RAC program would go a long way to clearing the backlog, AHA I, 812 F.3d at 193, the facts had since changed: few of the newly generated appeals were RAC-related. Second, since even dramatic changes to the RAC program would not enable compliance with the timetable, hitting the court-ordered targets would be impossible without settling unsubstantiated claims en masse, which the Secretary alleged would violate the Medicare statute. Third, the timetable would only exacerbate the backlog: hard deadlines would counterproductively incentivize claimants to file meritless appeals and hold out for settlement.

         The District Court brushed aside the Secretary's contentions. According to the Court, it "need[ed] not dive into the parties' debate" over the "legality and propriety" of the reforms necessary to comply with the timetable, since it was not ordering any particular reforms. Mandamus Op. at 5. Furthermore, compliance with the timetable would not require violations of the Medicare statute, but rather "simply demand[ed] that the Secretary figure out how to undertake proper claim substantiation within a reasonable timeframe." Id. (internal quotation marks omitted).

         Since the Secretary refused to engage with the premise of setting a timetable at all, proposing no alternative targets, the District Court adopted the Healthcare Providers' four-year plan: the Secretary was ordered to reduce the current backlog of cases pending at the ALJ level by 30% by December 31, 2017; 60% by December 31, 2018; 90% by December 31, 2019; and 100% by December 31, 2020.

         After filing an unsuccessful motion for reconsideration, the Secretary appealed the District Court's order.

         II.

         "Our consideration of any mandamus petition 'starts from the premise that issuance of the writ is an extraordinary remedy, reserved only for the most transparent violations of a clear duty to act.'" In re Core Commc'ns, Inc., 531 F.3d 849, 855 (D.C. Cir. 2008) (quoting In re Bluewater Network, 234 F.3d 1305, 1315 (D.C. Cir. 2000)); accord Power v. Barnhart, 292 F.3d 781, 784 (D.C. Cir. 2002) ("The remedy of mandamus is a drastic one, to be invoked only in extraordinary circumstances." (internal quotation marks omitted)).

         We previously explained that the decision to issue mandamus relief involved two distinct inquiries: one jurisdictional, and one regarding the equitable merits. AHA I, 812 F.3d at 190. In that previous appeal, we settled the former question, holding that the threshold requirements for mandamus jurisdiction were met, id. at 192, although one of our sister circuits has since thought otherwise, Cumberland Cnty. Hosp. Sys., Inc. v. Burwell, 816 F.3d 48, 52-57 (4th Cir. 2016). We, of course, do not revisit our previous conclusion regarding mandamus jurisdiction. See LaShawn A. v. Barry, 87 F.3d 1389, 1395 (D.C. Cir. 1996) (en banc) ("One three-judge panel . . . does not have the authority to overrule another three-judge panel.").

         Instead, we focus now on the equitable merits inquiry, along with the relief that the inquiry produced. We review this part of the District Court's analysis for abuse of discretion. In re Medicare Reimbursement Litig., 414 F.3d 7, 10 (D.C. Cir. 2005). And "[a] district court by definition abuses its discretion when it makes an error of law." Koon v. United States, 518 U.S. 81, 100 (1996).

         We conclude that since the Secretary represented that lawful compliance with the mandamus order was impossible, it was an error of law, and therefore an abuse of discretion, to nonetheless order the Secretary to render that performance without first finding that lawful compliance was indeed possible.

         Once the District Court determined that an ends-oriented approach of setting targets was the best course of action, it adopted the timetable proposed by the Healthcare Providers. Because it was mandating the ends, not the means, the Court believed that it "need[ed] not dive into the parties' debate over" the "legality and propriety" of the reforms necessary to clear the backlog. Mandamus Op. at 5. But this was a misstep. Although true that the Court was mandating no particular reforms, the Secretary would, of course, need to adopt some reforms to meet the mandated timetable. After all, that was the point of mandamus relief. But if, as the Secretary insisted, no lawful reforms could be implemented to meet the timetable, then it was an error of law to order the timetable met.

         The Secretary first contends that, given changing patterns in appeals, the tools within his discretion - most notably, curtailment or suspension of the RAC program - are not enough to clear the backlog. A major reason, according to the Secretary, is that the RAC program is no longer the principal cause of the backlog: only 9.5% of new appeals in 2016 were RAC-related, compared to more than 50% in 2013 and 2014. Appellant's Br. at 18.

         This contention is, at best, suspect. Those statistics coincide with a two-year suspension of most of the RAC program, which was instituted while new contracts were being negotiated. See Suppl. Decl. of Ellen Murray, Chief Fin. Officer of the Dep't of Health and Human Servs., J.A. 140-41 ("RAC activity decreased temporarily while [the Centers for Medicare and Medicaid Services] was negotiating a new Statement of Work (SOW) with the RACs, but several other changes took place that are expected to make lasting and continuing reductions to RAC-related appeal receipts."); see also U.S. Gov't Accountability Office, GAO-16-366, Medicare Fee-for-Service: Opportunities Remain to Improve Appeals Process 38 n.64 (2016) (explaining that the RAC program was temporarily suspended); id. at 38 ("HHS reported that it expects the number of incoming appeals to increase again when the new [RAC] contracts are awarded and the [RAC] program resumes full operation."). We are not sold on the Secretary's suggestion that concerns regarding the RAC program are behind us, and the District Court should scrutinize that claim on remand.

         We also share the District Court's skepticism of the Secretary's assertion that he has done all he can to reduce RAC-related appeals. As the Court explained, there are "around 300, 000 RAC-related appeals pending ALJ review, which constituted a sizable portion - 31% - of all pending . . . appeals." Mem. Op. at 13, No. 14-851 (D.D.C. Sept. 19, 2016), ECF No. 38. "Yet the only RAC-related action the Secretary reports to be undertaking or planning to undertake consist of three modifications to RAC contracts that will reduce the number of appeals that reach [the ALJ level] by [fiscal year] ...